Retirement Plan Options for California Construction Companies

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Offering a retirement plan is a strategic move for construction companies looking to attract and retain skilled workers. According to a recent study, the construction industry will need 439,000 net new workers in 2025 to meet demand, yet 94% report difficulty finding workers. With ongoing labor shortages, competitive benefits can make a meaningful difference.

Beyond workforce challenges, California businesses must comply with state retirement plan mandates. Companies with at least one eligible employee must either offer a qualified retirement plan or enroll in CalSavers, the state’s payroll-deducted IRA program. Understanding these options can help contractors remain compliant while strengthening their workforce. Federal tax incentives can also help offset costs, making private plans more accessible.

While this may not impact the majority of employees for Union contractors, it will still impact them as it relates to non-union employees within their company.

To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.

CalSavers

As construction businesses expand, they may need to reassess their retirement plan options to comply with California’s state requirements. Companies with at least one eligible employee must offer a qualified retirement plan or enroll in CalSavers. Businesses that already provide 401(k), SIMPLE IRA, SEP IRA, or another qualified plan are exempt.

CalSavers provides a straightforward way for businesses to facilitate retirement savings without the administrative complexity of a traditional plan. Employees are automatically enrolled at a 5% contribution rate, with an annual 1% increase up to 8%, though they can adjust contributions or opt-out at any time. For employers, administrative involvement is minimal. Businesses only need to:

• Register for the program (unless they already offer a qualified plan).
• Set up payroll deductions for participating employees.
• Submit contributions through the state-run system.

There are no employer contributions, fees, or fiduciary responsibilities.  The program is designed to close the retirement savings gap while requiring limited employer oversight. However, some construction companies may find private retirement plans more beneficial due to higher contribution limits, tax advantages, and greater flexibility.

Private-Sector Retirement Plan Options

For those seeking more control and flexibility, private-sector retirement plans provide several advantages. These plans can offer higher contribution limits, employer-matching options, and additional tax benefits.

• 401(k) Plans — A 401(k) plan allows employees to contribute either pre-tax or post-tax (Roth), with the option for employer matching contributions. These plans have higher contribution limits than IRAs, enabling employees to save more for retirement. However, they require ongoing administrative management and compliance with strict IRS regulations.
• SEP IRA (Simplified Employee Pension) — A SEP IRA is a simpler alternative designed for small businesses and self-employed individuals. Contributions are funded solely by the employer, and businesses can choose how much to contribute each year based on company profitability. These plans have fewer administrative requirements than 401(k)s, making them an attractive option for construction firms that want to offer retirement benefits with minimal paperwork.
• SIMPLE IRA (Savings Incentive Match Plan for Employees) — A SIMPLE IRA balances ease of administration with structured employer contributions. While it has lower contribution limits than a 401(k), it requires employers to either match employee contributions (up to 3%) or make a fixed 2% contribution for all eligible employees. SIMPLE IRAs are easier to manage than 401(k)s, making them a practical choice for growing construction firms.

Each plan has distinct advantages and requirements. The best choice depends on a company’s size, financial goals, and workforce needs.

Tax Incentives for Employers

To encourage small businesses and construction companies to offer retirement plans, the federal government provides tax credits:

• Retirement Plans Startup Costs Credit — Small businesses can receive a tax credit of up to $5,000 per year for the first three years to help cover the costs of setting up a SEP, SIMPLE IRA, or qualified retirement plan (such as a 401(k)). This credit applies to ordinary and necessary startup expenses, including plan administration and employee education costs. Unlike a deduction, this credit directly reduces taxes owed, dollar for dollar.
• Auto-Enrollment Credit — Employers that add automatic enrollment to the retirement plan, whether it’s new or existing, are eligible for an additional $500 per year for three years. Auto-enrollment can improve participation rates and help employees save consistently for retirement.
• Employer Contribution Credit — For businesses with 50 or fewer employees, the government offers a tax credit of up to $1,000 per employee for employer contributions to a defined contribution plan, SEP IRA, or SIMPLE IRA. This credit phases out over five years, covering 100% of contributions in the first two years, 75% in the third, 50% in the fourth, and 25% in the fifth. The tax credit is still available for businesses with 51 to 100 employees but is gradually reduced.

Considerations for California Construction Companies

When choosing between CalSavers and private-sector retirement plans, construction businesses should consider the following:

• Compliance — Companies must offer a private plan or enroll in CalSavers to avoid penalties.
• Costs vs. Benefits — While employer-sponsored plans have costs, they can help with employee retention and tax savings.
• Worker Recruitment & Retention — A strong retirement plan can set your company apart in a competitive labor market.

Contact Us

Construction companies in California have several retirement plan options, ranging from CalSavers to employer-sponsored 401(k)s and IRAs. Federal tax incentives can help offset costs, making private plans more financially feasible. If you have questions about the information outlined above or need assistance with another tax or accounting issue, JLK Rosenberger can help. For additional information, call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.